WASHINGTON (CNN) -- The FBI has evidence that a person who has been working at high levels in the Pentagon may be a spy for Israel, senior U.S. officials confirmed to CNN on Friday.

The suspect could have been in a position to influence Bush administration policy toward Iran and Iraq, the senior official said.

However, another government official said the suspect is "not in a level to influence policy."

"He is an analyst in an undersecretary's office," this official said.

A senior Pentagon official confirmed to CNN that Defense Secretary Donald Rumsfeld "had been made generally aware that the Justice Department had an investigation going on."

CBS News, which first reported the story, said the FBI had developed evidence against the suspect, including photographs and conversations recorded through wiretaps.

The network said the suspect has ties to two senior Pentagon officials: Deputy Defense Secretary Paul Wolfowitz and Undersecretary of Defense Douglas Feith.

Multiple sources have told CNN that the investigation is well along, and one government official described the evidence against the suspect as a "slam dunk case" and said "there has been no decision to prosecute the individual."

Officials said the suspect passed classified documents to Israel through the American Israel Public Affairs Committee, a pro-Israel lobbying group.

But AIPAC released a statement late Friday calling the news reports "false and baseless."

The statement said AIPAC learned Friday that "the government is investigating an employee of the Department of Defense for possible violations in handling confidential information."

A designation of the material as confidential would indicate a much lower level of secrecy than if it had been designated as classified.

AIPAC said it "is cooperating fully" with government authorities, including providing documents and information and making staff members available for interviews.Sources told CNN that two AIPAC employees have been interviewed in the case by the FBI.

"Neither AIPAC nor any of its employees has violated any laws or rules, nor has AIPAC or its employees ever received information they believed was secret or classified," the statement said. "AIPAC is an American organization comprised of proud and loyal U.S. citizens committed to promoting American interests. We do not condone or tolerate any violation of any U.S. law or interests."

Washington insiders note that it is not unusual for friendly governments to have access to certain classified information, so even if the allegations are correct, not everyone involved may have thought they were involved in espionage. Still, one U.S. source is calling the case "a very serious matter."

David Siegel, a spokesman for the Israeli Embassy in Washington, denied the allegations.

"The United States is Israel's most cherished friend and ally. We have a strong, ongoing, working relationship at all levels, and in no way would Israel do anything to impair this relationship."

An Israeli official in Washington said the U.S. government has not contacted the Israelis about any such investigation.

Despite the close relationship between the two countries, espionage against the United States on behalf of Israel would not be without precedent. Former U.S. Navy intelligence analyst Jonathan Pollard is serving a life sentence for passing classified material to Israel.

The Justice Department, speaking for the FBI, refused to comment, saying only, "We cannot confirm or deny the report."